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I'm a full time employee of a small company that does not provide any health insurance benefits. As a result I purchase my health insurance as an individual. In addition to my full time work where I receive a w2 I also consult on the side and get a 1099-MISC from my client. I earn roughly 25% of my net income from consulting. Based on this I understand that self employed people can deduct health insurance premiums. Given my circumstances can I deduct health insurance premiums on a schedule C?

  • Yes, you can deduct against your self-employed net-profit. Or if you're itemizing your deductions on your personal taxes you can include your medical premiums there. irs.gov/taxtopics/tc502.html – quid Feb 23 '16 at 2:53
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    @quid I knew about the itemized deduction, but it needs to exceed 10% of my agi (it doesn't). With the self-employment income it looks like I can deduct it no matter what. – Doov Feb 23 '16 at 18:11
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Checkout the worksheet on page 20 of Pub 535. Also the text starting in the last half of the third column of page 18 onward.

https://www.irs.gov/pub/irs-pdf/p535.pdf

The fact that you get a W-2 is irrelevant as far as I can see. Your self-employment business has to meet some criteria (such as being profitable) and the plan needs to be provided through your own business (although if you're sole proprietor filing on Schedule C, it looks like having it in your own name does the trick). Check the publication for all of the rules.

There is this exception that would prevent many people with full-time jobs on W-2 from taking the deduction:

Other coverage. You cannot take the deduc­tion for any month you were eligible to partici­pate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of ei­ther your dependent or your child who was un­der age 27 at the end of 2014, do not use amounts paid for coverage for that month to fig­ure the deduction.

(Pages 20-21). Sounds like in your case, though, this doesn't apply. (Although your original question doesn't mention a spouse, which might be relevant to the rule if you have one and he/she works.)

The publication should help. If still in doubt, you'll probably need a CPA or other professional to assess your individual situation.

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Do you satisfy the necessary criteria listed there? Then why not?... It sounds like you do.

  • I do. I guess I'm wondering if I still qualify since I'm not 100% self employed. It seems strange that because I have additional income from consulting I could deduct my premiums, but if I didn't have that income I wouldn't be able to. – Doov Feb 22 '16 at 3:21
  • @Doov isn't the US tax code fun? – littleadv Feb 22 '16 at 3:28
  • It works that way because employers typically make their health plan available to employees via a Section 125 cafeteria plan. In a cafeteria plan your contributions to your coverage are deducted from your paycheck in a pre-tax manner, your employers contributions to the plan are a business expense. So W2 employees can't deduct their costs because it was contributed tax free already. – quid Feb 22 '16 at 18:29
  • @quid you're explaining what is happening, but it doesn't make it any less ridiculous. Why a self-employed person can deduct medical insurance pre-tax, while an employee cannot? No reason. Sec. 125 plans are not available everywhere and you saw from the outcry about the mandate to offer them imposed on larger employers - quite a lot of employers don't think they should offer them. There's no real reason for this in the tax code, just politics and narrow-minded thinking of people who just don't know any better. – littleadv Feb 22 '16 at 19:11
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    @quid W2 employees without access to an employer health plan can deduct their premium also - no. To answer your general question - the main problem I see is that health insurance is somehow tied to employment. I think the US is the only country in the world where in order to get health insurance coverage you must be employed. Reminiscence of slavery, I guess. Being a foreigner, it is just yet another thing that to me is incredibly unreasonable while Americans just can't see how the world could be any different. – littleadv Feb 23 '16 at 4:56

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